Emerging online game ventures do not seem happy with this new amendment. Online game players who invest small amounts might back off after understanding this law. Read Now

Beginning of the New financial year from April 1, 2023, will amend many taxation changes that will affect online gaming in India this time too. Based on the changes made to Finance Bill 2023, online gaming would be subject to new Tax Deducted at Source (TDS) laws. Under these TDS collections for online games, a major shift in tax values will arrive.

Before March 31, 2023, TDS was imposed on the online game-winning amounts, only if they exceeded ₹10,000. But under the new Finance Bill 2023, online gaming companies are subjected to impose 30% TDS on all earnings of the customer excluding the entry fee charges.

(Also Read: Tamil Nadu Government Bringing Back Online Gaming Ban Bill)

The Chief of Staff from The Dialogue- Kriti Singh, stated-

“The applicability of 30% Tax Deduction at Source (TDS) from net winnings from April 1 comes as a bit of relief for online gaming companies as opposed to the earlier proposed date of July 1, 2023. The Finance Bill 2023 passed on March 24 brought more clarity on the taxation regime for the online gaming sector and a separate taxation regime is also a welcome move.”

Changes in TDS on Net Winnings Explained

Previously the TDS was deducted from any online game winnings only if they were more than ₹10,000/-. For example, if you won 15000/- on any online game then based on the 30% TDS imposed, you’d receive ₹10,500/ (₹15000 minus ₹4500) on withdrawal. 

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But under the new amendments, which will be effective from April 1, since the threshold has been removed and the TDS will be imposed on any net winnings aggregate, you’d receive on online games excluding entry fees. Then, if you won ₹100/- and it has a paid entry fee of Rs.10/-, then after the 30% TDS deduction ₹100-10= ₹90 (Net Winnings)-30%TDS= ₹90-27= ₹53 only. Pretty sad we know!

Why Threshold is Removed?

Kriti Singh further explained the intention behind the removal of the threshold for online game winnings quoting-

“...the intention of removal of threshold is to discourage users from avoiding tax by splitting the winnings to keep it below the threshold of ₹10,000, this could have been addressed through taxation on just net winnings. The high TDS percentage and threshold removal will discourage users to play on legitimate platforms and in turn, impact the growth of the industry. Thus, these amendments do not seem to align with the government's intent and mandate of ease of doing business,"

Gaming Owners Don’t Seem Happy

The removal of the threshold puts additional pressure on gaming companies to deduct TDS of 30% on each transaction which will hugely affect the users who deposit small amounts of money deterring them from investing in online games. It will further drastically reduce the audience of emerging gaming online companies.

The CEO and Founder at House of Gaming- Yash Pariani, said 

“Imposing 28% TDS for online gaming under the current circumstances, wherein, India’s two biggest esports BGMI & Freefire are banned, the tax laws seem to burden the potential growth of online gaming in the upcoming years. The uncertainty on the regulations for the most popular games has previously resulted in a decline in the overall number of major events hosted. Imposing TDS can result in further reduction of investment into the gaming sector by advertisers."

Anita Basrur, Partner Sudit K Parekh & Co. LLP said-

“With the provisions being effective from 1st April, government is yet to notify the mechanism and the procedural aspect for doing the compliance. This will create chaos amongst the gaming industry owing to the fact that IPL 2023, amongst other games being played, is set to begin at the end of the financial year and many individuals seek this opportunity to make quick gain. Further, challenges may also be faced whether the earnings are prior to 1st April 2023 and in the absence of any specific guidelines, they may also attract Withholding."

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